AGREEMENT, EUROPEAN NEIGHBOURHOOD POLICY AND EASTERN PARTNERSHIP
5 EU-AZERBAIJAN COOPERATION
5.5 SECURITY AND GEOPOLITICS
Finally, EU-Azerbaijan relations have a significant security and geopolitical component. Geopolitically, the ambiguous position of Azerbaijan vis-à-vis Russia is significant, with the latter supporting Armenia in the conflict over Nagorno-Karabakh, while at the same time having close relations to Azerbaijan (as a CIS member). The EU has supported efforts by the Co-Chairs of the OSCE Minsk group to resolve the conflict and has generally promoted relevant confidence- and peace-building activities, including through the European Partnership for the peaceful settlement of the conflict over Nagorno-Karabakh (EEAS 2017a;
European Partnership for the Peaceful Settlement of the Conflict over Nagorno-Karabakh 2018).
Azerbaijan has sought closer cooperation in the field of security policy, including a more proactive role of the EU in the Nagorno-Karabakh conflict (Merabishvili 2015). At the same time, Azeri relations with China have grown over the past years, including with respect to the economy and security (Azernews 2018a, b;
The Diplomat 2018; Xinhuanet 2018).
Although Azerbaijan’s educational system is solid. investments into education and training seem crucial for advancing the development and transition of the country and the diversification of its economic base.
Without proper accompanying political efforts, decarbonisation of Europe and the world consequently has the potential to undermine political and economic stability of Azerbaijan. Phasing out fossil fuel production and exports will mean replacing Azerbaijan’s main engine of economic development and source of government income, which could reinforce existing risks to political stability, including limited political freedom and military conflicts that are currently contained but not resolved (with respect to Nagorno-Karabakh). Decarbonisation hence poses the challenge to find alternatives to oil and gas as a basis for Azerbaijan’s economic well-being and political settlement.
There are a number of areas of mutual interest between Azerbaijan and the European Union beyond oil and gas that can provide a basis for fruitfully developing the relationship under decarbonisation. At a geopolitical level, the EU has an interest in developing this relationship because Azerbaijan belongs to its neighbourhood, while Azerbaijan has an interest in diversifying its external relations and opportunities (i.e. beyond Russia). More specifically with respect to the decarbonisation challenge, Azerbaijan has an interest in developing its economy beyond oil and gas, in which the EU can assist in important ways. This would, however, require a re-orientation away from the current focus on the fossil fuel relationship (including the Southern Gas Corridor).
Azerbaijan is a country that is highly dependent on oil and gas exports for its economic welfare and political stability. It is located in the Caucasian region that is characterised by a number of frozen conflicts and a fragile, and evolving, geopolitical balance, involving Russia, China and the EU. The EU is one of the main export markets for oil and gas from Azerbaijan (while Azerbaijan’s relations with China are becoming more important).
6 CONCLUSIONS
The export of oil and gas have played a major role in Azerbaijan’s development, with the country depending on oil and gas for economic growth and government spending.
NIGERIAAZERBAIJANCOLOMBIAINDONESIAQATARCANADA
6.1 FOCAL POINTS FOR FOREIGN POLICY
Possible focal areas for developing the relationship beyond oil and gas include:
Education and training are a central part of the effort at economic diversification and developing a knowledge-based economy. Building on existing cooperation (e.g. in the context of the Erasmus+ programme, etc.), bilateral cooperation can be intensified so as to bring the significant resources of the EU and its member states to bear to assist in enhancing and shaping education and training in Azerbaijan. One significant focus in this respect could be cooperation supporting the expansion of renewable energy (e.g. a degree in renewable energy in engineering).
The further development of the energy system, especially the expansion of renewable energy promises obvious advantages by making the economy less dependent on oil and gas and developing energy infrastructure. While it is urgently required for moving toward decarbonisation, it also makes sense with continued exploitation of domestic oil and gas resources as it will increase the share of (declining) resources available for export. Concrete first steps may include studying the risk of stranded assets with respect to relevant fossil fuel investments and the creation of a policy dialogue on the potential of clean/renewable energy.
Strengthening the rule of law and advancing the fight against corruption is one of the crucial bases of attracting foreign investors at a large scale, including SMEs. The EU and its member states have significant experience and expertise to offer to this end. Part of such a focus could also be dialogue on strengthening financial governance, including SOFAZ and the changing landscape of climate-proofing investments.
Multiple other areas can be further developed over time, including water management and advancing mutual market access and investments.
Overall, there is hence a range of options for developing the EU-Azerbaijan relationship beyond oil and gas.
Such a renewed direction for the bilateral relationship would promise significant returns for Azerbaijan as it would help address stability risks arising from the dependence of the country on oil and gas and put Azerbaijan’s economic development on a broader basis, preparing for declining returns from decreasing oil and gas reserves. It would at the same time help put EU-Azerbaijan relations on a broader basis making them fit for a decarbonising world and strengthening them in a precarious geopolitical constellation.
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TABLE OF CONTENTS
LIST OF ABBREVIATIONS 81
1 INTRODUCTION 83
2 EXPOSURE AND RISKS 84
2.1 EXPOSURE TO GLOBAL DECARBONISATION TRENDS 84